Wealth Preservation
Labour politician Roy Jenkins in 1986 famously said “Inheritance Tax, is broadly speaking a voluntary levy paid by the ill informed, the ill advised and by those who distrust their Heirs more than they dislike the Inland Revenue.”
Planning for the future is not to be taken lightly.
We all want to protect our wealth and help ensure our families are provided for when we die. However, increasingly HM Revenue & Customs (HMRC) are challenging the valuations of properties given for Inheritance Tax (IHT) purposes.
Reducing an Inheritance Tax Bill
Write a will
Making a Will is the first step to reducing your IHT bill. It helps you get an idea of what your estate is worth, therefore providing a good basis to understand how much IHT planning is required.
*Will writing is not part of The Openwork Partnership offering and is offered in our own right. The Openwork Partnership accept no responsibility for this aspect of our business. These Will Writing is not regulated by the Financial Conduct Authority.
The Financial Conduct Authority does not regulate Trusts.
Great Give-away
You can give away cash or assets up to the value of £3,000 a year without it incurring any taxes. Parents can also give up to £5,000 to each of their children as a wedding/civil partnership gift while grandparents can give up to £2,500. Others can also contribute to loved ones’ weddings/civil partnerships but are only allowed to give up to £1,000.
You can make small gifts up to £250 to as many people as you like, as long as you haven’t already gifted that person in the same tax year.
The products and services promoted here are not part of The Openwork Partnership offering and are offered in our own right. The Openwork Partnership accept no responsibility for this aspect of our business. These products are not regulated by the Financial Conduct Authority.
Seven Year Rule
The seven-year rule allows you to make additional tax-free gifts providing you do not pass away within the next seven years. These gifts are called ‘potentially exempt transfers’ (PETs) and can be anything from cash to property. However, you cannot give something away and still benefit from it, for example, you can’t give away the family home and then continue to live in it unless you pay the market rent.
If you were to pass away before the seven years were up, the assets would be taxable. However, the amount would vary and depend on how close to the seven-year milestone you were. For example, if you were to die within six years, the tax bill would be less than if you passed away within a couple of months. This is known as ‘taper relief’.
A Matter of trust
Placing assets into a trust in your lifetime could be a good way to decrease your IHT bill. Limited to the nil rate band, these gifts count as potentially exempt transfers. This means the same rules apply, so if you pass away before the seven years are up, IHT will be due.
It is possible for a Settlor to place assets in excess of the nil rate band in a trust. These gifts are called ‘chargeable transfers’ as tax is payable immediately the asset goes into the trust. However, if the Settlor dies within seven years then there could be an IHT liability to pay too.
Rural Ambitions
Buying farmland is an alternative way to help reduce a potential IHT bill, as farmland qualifies for agricultural property relief of up to 100 per cent after two years of ownership. The land has to be actively worked on for ‘agricultural purposes’ so, unless you have rural ambitions, this will not be an option for the majority.
Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor.